| |
| |
|
|
Stocks and Mutual Funds |
|
Trading Education: The Best of Both Worlds!
I made my very first investment in the stock market when I was ten years old. Ever since then I have been hooked! Now I check out hundreds of trades each year with the same excitement andenthusiasm, and each time try to find that one market at the right time that could dramatically create wealth. If you would've been fortunate enough to invest $1,000 in Microsoft when it first came public, that initial investment would be worth close to $300,000 today. In the last 10 years America Online has been up 12,000% and it has come creashing lower as well! Although statistics like this are advocated regularly by journalists and brokers the majority of investors have a very difficult time staying in an investment for that long of a period of time even though they know they are in a good company The financial markets are a never ending source of temptation trying to lure you into a new position with each passing second. The belief that the grass is always greener in another market is a distraction that every investor eventually has to contend with. Even if you are a MUTUAL FUND investor the fact is that you are always looking for the BEST return available. Years ago when I worked as a broker I was confronted with this dilemma. One of my clients told me that he knew the BIG MONEY was made in holding on for the LONG TERM but that he liked trading the short term swings. He asked my advice and I had to think long and hard for several days before I could respond. Eventually, I presented him with the following strategy that literally combines the best of the TRADER and INVESTOR worlds. Traders are looking for the quick hit and run. Investors seek their advantage by looking at the long term. Long term investors quite often benefit from allowing dividends to be reinvested into purchasing more stock in the company and the very real possibility of the stock splitting in the future. If you combine both of these apparently opposite perspectives you end up with a very unique viewpoint that eliminates a lot of stress associated with decision making. This strategy will bring home the perspective that within every seed that you plant in the financial markets lies the promise of ten thousand forests. I refer to it as my FOREST STRATEGY! It is another way to make your short term efforts as a trader pay you dividends by also recognizing the importance and significance of long term investing. Let's say that your initial investing capital is $10,000. 1) Find a company, preferably in the Standard and Poors 500 Index that you understand and are familiar with. If you want to narrow down your group you can select companies that are in the Dow Jones Industrial Average which include only 30 stocks. These are established companies with long financial histories that can be researched to your hearts delight. 2) Study the companies Price Earnings Ratio. Where is the Price Earnings ratio now? What has been The highest and lowest points of the price earnings ratio over the last five years? Look to buy a company with a historically low price earnings ratio that is a leader in its industry. Use the Price Earnings Ratio as a guide. Don't try to pick bottoms. 3) Look at a chart of prices to see what has happened recently and to determine where a good buy point is. 4) Place your trade with the intention of a 10% profit objective. Once you reach your profit objective, sell enough shares in the company to remove your initial $10,000 investment and only leave your $1,000 profit in that stock. 5) Repeat steps 1-3 as you search for another company to trade for a 10% profit and plant the Remainder for the long term. 6) Repeat, Repeat, Repeat. The drawback on this type of trading is that when you are with a great company you do give up a lot of upside. However, if you look at the PROBABILITIES how many IBM's, Aol's, Yahoos! Or Microsofts are there out there in relation to the entire universe of stocks? What I personally like about this style of trading is that it eliminates the GREED factor that most investors have of trying to hold on for the top tick. Secondly it also allows you to build a nice diversified portfolio. Thirdly, trading becomes a very fun game with potentially lucrative long term implications. It is very possible to trade this way once a month planting a seed in a quality company that can easily become a Forest of Wealth for you. Some trades might take the better part of a year to pan out. Some trades might achieve your profit objective in a matter of weeks or days if you are really fortunate.. Keep in mind that you still have to manage your risk on each and every trade. Let me be perfectly blunt, if you don't manage your downside there will not be an UPSIDE... It is acceptable to use any of the RISK Management Techniques that I advocate by doing Partial Covered Calls and other Option Selling Techniques. When done correctly those techniques can dramatically accelerate your returns. I must admit that I truly enjoy this type of trading. (My broker likes it as well as it generates many more commissions for him.) However, part of the reason that this method sits well with me is that I hardly pay any attention at all to my profits after I take them. It becomes very stress free to know that you have increased your wealth 10% and are just interested in planting seeds all over the financial landscape in companies that meet your criteria. I must however stress the point that you make sure that you are aware of the downside. This method is by no means RISK FREE....but for the individual who likes to trade and invest simultaneously it truly is ideal. Guard your investment principal at all costs and let your profits run. Just one more way to look at the bigger picture. Kind of like a Johnny Appleseed meets the financial markets. Many extremely successful investors do this with Initial Public Offerings as well. Study away.and remember,let's be careful out there. Dowjonesfully- Harald Anderson is the founder and Chief Analyst of eOptionsTrader.com a leading online resource of Options Trading Information. He writes regularly for financial publications on Risk Management and Trading Strategies. His goal in life is to become the kind of person that his dog already thinks he is. http://www.eOptionsTrader.com.
MORE RESOURCES:
Stocks-Mutual-Funds - Google News |
|
|
|
RELATED ARTICLES
Quality Investment Information: Standing Firm In the Face of Opposition THERE'S SOMETHING TO BE SAID FOR standing firm in the face of opposition. Interestingly, most of the best stock decisions have come at times when the mainstream is saying precisely the opposite. Exchange Traded Funds Primer Exchange Traded Funds (ETFs) are a group of passive index funds that trade on an exchange like an individual stock. At the time of writing there are 162 ETFs with $220 billion in assets under management trading on U. Stock Valuation using the SMP Model Disclaimer: Please note that I do not necessarily purchase, own, or partake of any of the securities or other financial instruments mentioned in this article. I also do not take any responsibility for any actions resulting from any actions taken by anyone who reads this article. Gurgle Gurgle Caught in a whirlpool and being sucked under. No life vest or other device to save you. War Market There is no question that the stock market is being affected by war jitters. When it looks like peace we have a strong rally. Frog In The Pot You remember the story about the frog that was put into a pot of cold water on the stove. He was not concerned. Who Knows? The Shadow knows. Remember him? It seems a shadow has a firm grip on this stock market. Commoditizing the world Let's discuss commodities; with the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product. Look Out The Window Quick, look out the window. It's raining. How to Maximize Your 401k Mutual Fund Returns When it comes to 401k's there is an overabundance of sad stories. Here is one that at least has a happy ending-and it's getting happier all the time. Dont Spend Another Dollar on Business Opportunities Until You Read This With an insecure job market, overworked employees, insufficient retirement savings and parents wanting the option to stay home with their kids, it is not surprising that many individuals are taking the leap into online business opportunities.The need to create a secondary income is a smart move for people who recognize the risks associated with the traditional job market. Fools Gold The stock market has been in an up trend for more than a year. Almost everyone is feeling good and many believe we are back in the old bull market with the previous high of the Dow Jones Industrial Average just about to be broken. Successful Trading - Taking Profits - Part 2 Suppose your position has made a big move and you moved your stop to your purchase price as recommended. Then let's say your stock continues to make a big move and now we're asking again the questions we asked back in the first paragraph. The Stock Market Doesnt Care if You are a Beginner?. Get Prepared to Succeed at Trading Stock trading remains a very competitive field and the stock market doesn't care if you are an experienced stock trader or an aspiring one. The rules and the trading opportunities are the same for all of us, so either youre going to make money when you pick a stock and make a trade, or you are going to lose some of it in favor of the more seasoned traders. Trade Stocks for Real I read a comment by a forum member on another site earlier today that suggested that every investor should back test their system for at least twenty years. I disagree and will now tell you why. Bollinger Bands Strategies The Bollinger Band theory is designed to depict the volatility of a stock. It is quite simple, being composed of a simple moving average, and its upper and lower "bands" that are 2 standard deviations away. Protectionism First let's see what protectionism is. According to Mr. Buy and Hold Investment Philosophy Wall Street has been preaching the doctrine of Buy and Hold forever. The worst part about it is the small investor (and some big ones) actually believe it. How to Read an Annual Report Every publicly traded company is required by the SEC(Securities and Exchange Commission) to provide annual reports to it's shareholders, and the general public as well. These annual reports contain very important financial information, as well of summaries of the companies progress made by the CEO, board members, etc. Inertia One of the basic laws of physics is that a body in motion will remain in motion unless disturbed by another force. What has this to do with the stock market?For the last 2 years the long-term trend of the market has been down with a few momentary deviations.
|
||||||||||||||